The full spectrum of promotions can be seen at retail supermarkets during the course of the last thirty years. Past promotions include the use of trading stamps, such as those distributed by the Sperry and Hutchinson Company—(“S&H” Green Stamps). Purchasers of the promoted products would receive these stamps—exchangeable for gifts—and thus preferentially selected those stores that distributed these stamps in conjunction with the product sales.
Another promotional tool is the discount coupon, in which manufacturers of select goods, such as ice cream or coffee, would distribute coupons to potential customers. These coupons are presented during the purchase (check-out) of a can of coffee at the a participating retailer, the retail operator advances the coupon's face value as an instant discount as agent for the manufacturer. Face values average 20% to 30% of the product's retail price, and 80% of Americans report using them. Once redeemed, the participating retailer must submit the coupon back to the manufacturer for reimbursement of the face value discount plus a handling fee for accepting and processing the coupon. Manufacturers continuously and broadly distribute coupons as they significantly enhance customer demand for their brand over competitive brands. These savings were available at all participating retailers, especially mass grocery retailers such as supermarkets supercenters and discount department stores.
Nevertheless, retailers were less impressed with the manufacturer based discount coupons, primarily because customer purchase decisions were swayed in a direction independent of a given retailer as the savings were tied to the product, not the retail outlet. To counter the manufacturer's efforts and bring customers to their specific store(s), retailers introduced weekly sales, which were and are still communicated through advertising circulars mass distributed in newspapers. Retailers even introduced their own coupons within their sales circular on broadly used products to limit the quantity that consumers could buy. With the exception of retailer-couponed items, sales items were simply “marked-down” or “price-reduced” within the store with all consumers buying sale products during the sale period receiving the reduced pricing. These store-based discounts were in contrast to the manufacturer's coupons and, more popular with store owners.
The maturation of American population has caused systemic changes to America's grocery industry. Specifically, over the last ten years, the grocery business has been consolidating with retailers taking control via great regional and national chains displacing small to medium local market operators. This concentration at the retail level has dramatically increased the leverage the chains command in negotiating co-marketing efforts with manufacturers of branded goods. As of year end 2001, the nation's top five (5) mass grocery retailers command just under 50% of total U.S. grocery sales with the #1 retailer alone accounting for 15%. It has also led to the largest increase in store brands and store-based discounting. These years of intense discounting (by both retailers and manufacturers) has caused American shopping behavior to become price-sensitive, especially among its heaviest shopping households. This sensitivity has grown so acute that the vast majority of purchases now occur only when products are on sale. Manufacturers and retailers alike wish to focus their discounting efforts toward retaining the shopper loyalty of their best customers. This consistent goal has caused retailers to develop the Frequent Shopper card, which include coded identification information issued by the retail store, for free, to any consumer willing to accept one.
The use of Frequent Shopper cards has grown dramatically during the last five to seven years and is now offered by most major supermarket chains. From a consumer standpoint, 55% of American households now use Frequent Shopper cards with the majority carrying cards from competitive retailers. The profile of card using households matches with the demographic profile of heavy shopping households. Usage surveys indicate that 91% of cardholders use them in every shopping trip. Analysis has shown that only a small portion of cardholders account for a disproportionately high percentage of purchases. These cards include a simple bar code unique to that specific customer, and are either credit card size or smaller for attachment to a key chain, making compliance convenient for the users. During checkout, the card code is scanned and the register entries for the goods purchased at checkout are stored within the digital transaction file with the unique code corresponding to that customer. Discounts are provided for the on-sale products purchased. The store computer from every store in the chain then transmits every transaction file (including both those impacted by a Frequent Shopper card code as well as those NOT impacted by a Frequent Shopper card code) to a remote central file for the entire chain. This file, stores the details of the transaction (including all items purchased, all retailer discounts, and all manufacturer coupons). Retailers with Frequent Shopper Card programs also have a separate database of cardholders including cardholder name, home address and telephone number. Some retailers also ask for e-mail address and number of family members. Retailers with Frequent Shopper Card programs have the capability to link transaction files of cardholders and build a database of the purchase behavior of their cardholder customers, thereby allowing the store to track buying patterns of its registered customers.
Notwithstanding these changes, the industry largely depends on one form of manufacturer coupon-based promotion over all others. This promotion is known as the Free Standing Insert or FSI, which is dedicated to promotion offers that are coordinated and produced by an integrator service and then shipped to newspapers for insertion and delivery with Sunday newspapers. Promotion offers for grocery products generally entail a product advertisement with a coupon as an inducement to buy.
There are a number of problems with the FSI as presently applied. For example, consumers dislike cutting and organizing the various coupons for selective submission during checkout; a well-known inconvenience that is simply tolerated but not enjoyed. Additionally, store owners dislike having their cashiers handle coupons as they slow down and actually interrupt the check-out, as well as the associated paperwork required in collecting, processing, and submitting coupons for reimbursement, which is time consuming and expensive.
The manufacturers are also troubled by the FSI coupon due to both its high media wastage level (98%) and its high fraud level (15% of redemptions). Fraud primarily occurs as rings of criminal cells collect coupons prior to distribution, mass cut and launder them, and then using small, individually-owned stores as a front, and submit the coupons for repayment, without any corresponding product sale. Indeed, this form of fraud is believed to be pervasive and has been linked to funding of terrorist organizations.
Even with these problems, FSI coupons remain the dominant form of manufacturer discounting and promotion. Obvious benefits from the FSI format is the low cost per distributed coupon and the pro-active distribution that brings shoppers into stores. Simply stated, no system has the proper balance of cost and effectiveness to displace or challenge FSI in the market.